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Pawn Shops Go For The Gold

Pawn shops are affected by fluctuating gold prices due to the fact that many buy gold outright and have jewelry as stock. Gold prices aveeraged $1722/oz in November, bringing the fourth quarter-to-date average price to $1735, which is up 2.9% vs 4Q11 average price of $1,686. Gold prices are acting as a tailwind for pawns right now, but volumes are also important to pay attention to. Same store gold volumes have been falling in the high teens at the year-over-year rate over the last few quarters. Rising prices do help a little but not enough to outweigh declining volumes.

 

Pawn Shops Go For The Gold - Gold

 

Who’s affected by the decline in volume the most? EZ CORP (EZPW) and Cash America (CSH) have been the hardest hit while First Cash Financial Services (FCFS) and DFC Global (DLLR) are faring well on their own. We are bearish on EZPW and CSH and bullish on FCFS and DLLR. 

 

Ultimately, one would think that the Federal Reserve’s policy of quantitative easing would be a boon to pawns as it drives up the price of gold. Hedgeye Financials Sector Head Josh Steiner explains the effects QE has had on pawn shops over the last few years:

 

“In the chart below we show how payday lenders have performed over the last three quantitative easing programs. Interestingly, QE3 has not had the same positive effect on the pawn/payday space that QE1 and QE2 had. In fact, pawn/payday is the second worst performing subsector since QE3 started. We attribute this almost entirely to the gold dynamic.”

 

Pawn Shops Go For The Gold - QE infinity


Expert Call; What's Next For Agricultural Prices?

Expert Call; What's Next For Agricultural Prices?               - Ag.Call

 

Restaurant Tickers Affected:

DRI, BLMN, TXRH, WEN, JACK, MCD, PNRA, PZZA, DPZ, YUM, CAKE, EAT and CMG

 

Food Processing Tickers Affected:
TSN, SAFM, SFD, HRL, PPC, CAG, DF and MON 

 

 

On Tuesday, December 4th, at 11:00am EST the Hedgeye Macro Team and Restaurants Team will be hosting an Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends. 

 

Please dial in 5-10 minutes prior to the 11:00 EST start time using the number provided below. If you have any further questions email 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 611762#

 

Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long-term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken  

 

Good's Background

Darrel Good has a comprehensive understanding of the agricultural markets and economic implications. "There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Good and two other faculty members developed a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • He writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts
    • Evaluation of pricing performance of Illinois corn and soybean producers  

FNP: Impact of CEO Hire at Juicy

Takeaway: We have a mixed read on this morning’s new CEO hire at Juicy Coture. Net positive, but the timing of the catalyst calendar has been extended

We have a mixed read on this morning’s announcement of the new CEO at Juicy Coture (Paul Blum – from Kenneth Cole and David Yurman). On one hand, McComb has been looking to fill the co-president role alongside Chief Creative Officer LeAnn Nealz for the past year. As such, this announcement caps a very long recruitment process. That’s a positive. On the flip side, we’ve gotta think that before Blum accepted the job he looked McComb in the eye and asked for a certain commitment in time and resources to get this company back on track. We previously thought that another miss at Juicy would come alongside an announcement of a sale. Now we think that process will be longer dated. They’ll give the new CEO time. That’s a negative. We still think that the brand will be either fixed or sold, and we’re still at $0.95 in F14 – which is nearly 2x the consensus. But the timing of the catalyst calendar has been extended.


Here are our thoughts on the move:

  1. Decision Tree re Juicy: We see three potential outcomes for Juicy, #1: business improves – FNP keeps it, #2: business erodes – FNP sells it, or #3: business sputters along – FNP keeps it. As we highlighted in our note on 10/2 “FNP: Take 2,” we think the odds are likely that FNP sells Juicy. What has changed by this announcement is timing. Our original view of a sale by next summer is more likely now by the end of 2013. If fundamentals erode further over the near-term, the company now has an excuse to see its strategy through for another quarter or two more than it may have previously. But it does beg the question on timing – why spend money now if they are planning to sell?
  2. Setup into ICR: As it relates to our view on the setup headed into ICR (mid January) where we expect the  company to provide an updated brand outlook, the likelihood of an early divestiture announcement (i.e. at ICR) has been greatly reduced. This was simply a call option on the stock near-term, not the driver behind the run since 3Q results. Driving performance over the past month is confirmation that FNP is taking square footage growth materially higher at Kate and Lucky (see our note “FNP: Juicing Kate” on 10/25).
  3. Productivity: Both CEO Bill McComb and CFO George Carrera have been spending a disproportionate amount of time on Juicy focusing on stemming losses versus higher growth aspects of the business. The hire of Blum enables senior management to recalibrate their focus at the same time they just announced significantly more aggressive square footage growth plans at Kate and Lucky.
  4. Fit/Background: Blum is no stranger to designer driven companies having served in the CEO role at both David Yurman (2005-2010) and most recently at Kenneth Cole after a 15-year stint at KCP prior to Yurman. Importantly, like FNP’s other two brands Kate Spade and Lucky, the co-president structure is the norm rather than the exception at FNP.

 

All in, this moves doesn’t change our view that Juicy will be sold. However, we do think it will buy management some time from having to make a more definitive comment on the brand’s future over the near-term at ICR. In the meantime, senior management can focus on higher ROI initiatives i.e. growing Lucky and Kate Spade. FNP continues to be one of our top long ideas.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

Trending Lower In Vegas

The situation in Las Vegas continues to worsen with October Strip data poised to show yet another negative month of data. We estimate that October gaming revenue for the Las Vegas Strip will fall between -5% to 9% on a year-over-year basis. The fact that October had one less Sunday and Saturday in the month certainly doesn't benefit the data. Meanwhile, McCarran airport passengers fell 1.5% while taxi trips fell 3.6% in August marking the fourth consecutive month of declines. Taxi trips tend to correlate to gaming revenues so when trips decline, revenue declines. We also believe that slot volume will continue its downward trend in October after a respite in September.

 

Trending Lower In Vegas - image005


Bearish Notes In Energy

In addition to Techology and Utilities, Energy is one of three sectors that is bearish on our TRADE (3 weeks or less) and TREND (3 months of less) durations. The Energy Select SPDR ETF (XLE) continues to fall from September with a dead cat bounce occurring late last month. Our key levels to watch are Trade resistance at $71.64 and Trend resistance at $72.09. Our adage of “get the dollar right and you get a lot of other things right” applies to energy too. Watch the aforementioned levels as they get tested with the strengthening USD.

 

Bearish Notes In Energy - xle


IGT: UPGRADE LOOKS RIGHT

DB upgrades IGT ahead of Thursday’s analyst day

 

 

We take some flak for being critical of some of our competitors' research but we try to limit our criticism to times when we think it could affect a stock price and we disagree.  It’s only fair, however, that we give credit where credit is due.  We agree with DB’s upgrade of IGT.  It probably comes as no surprise to our clients as we’ve been consistently positive on the stock since our management visit and 10/1/12 post “IGT: IMPROVING 2013 EARNINGS VISIBILITY."

 

Here are the DB thesis points that we agree on (5 out of 6):

 

1) accelerating earnings and beatable Consensus numbers, which has historically correlated strongly with stock price performance

2) real free cash flow relative to peers which allows for accretive buybacks

4) two years of solid expansion demand which is likely to curb “earnings cliff” fears that center around F2014

5) a relatively free option on expansion in the social gaming segment

6) a historically inexpensive valuation and inexpensive valuation relative to peers despite the most stable outlook and most ample liquidity

 

To be fair, we are less confident on thesis point #3:

3) a gaming ops yield inflection in the F2H13 which should curb the primary bear case in the stock

 

We think gaming ops yield could stabilize but wouldn’t go so far as call it an inflection point.  Yield is still at risk but this is well-known so even stabilizing yield would probably be good for the stock.


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